Secured Creditor Is Liable To Pay Liquidator's Fees Under Rule 21A Of Liquidation Regulations If Option U/S 52 Of IBC Is Exercised: NCLAT

Brief Facts

The present appeal has been filed against an order passed by the Adjudicating Authority by which the AA directed the appellant to pay fees of the Liquidator.

The corporate debtor was admitted into insolvency on September 16, 2021 on an application filed by Narendra Solvex Private Limited. When no resolution plan was approved, the corporate debtor was ordered to be liquidated. Shikshak Shahakari Bank Ltd chose to realise its security interest under the SARFAESI Act. Dispute arose pertaining to fees of the liquidator. The bank alleged that the fees calculated by the liquidator is exorbitant and unsupported by law. Thereafter, the liquidator filed an IA seeking payment of its fees. The NCLT, Mumbai, allowed the I.A.

It is the case of the appellant that the Respondent had not played any role in realising the asset and the Appellant had itself set the recovery machinery in motion under the provisions of the SARFAESI Act and recovered its amount by auction of the secured asset and that Respondent / Liquidator is illegally demanding a fee contrary to the provisions of law which has not accrued in the first place.

It is also submitted that the term 'amount realised' means an amount that is being realised from the sale of an asset where the asset changes. Secondly, in cases where the funds are readily available for distribution, the Liquidator is entitled to a fee only on

distribution.

It was further contended that the Respondent is only eligible for entitlement of fee under Regulation 4 Sub-Regulation 2(b), only when the Liquidator has actually realised or distributed any amount. However, in the present case, there has neither been any distribution nor any realisation of amounts by the Respondent, in so far as the secured asset of the Appellant

is concerned.

On the other hand, it is the case of the respondent that the Appellant did not comply

with Regulation 21-A of the Liquidation Process Regulations, 2016, within the 90 days of the liquidation commencement date. The Appellant was required to pay the following costs in order to comply with Regulation 21-

A(2) of the Liquidation Process Regulations .

It further argued that the Respondent / Liquidator, on 15.05.2023, requested the Appellant to remit the pending CIRP /liquidation cost, including the fee of the Liquidator, which is a condition precedent as mandated under Regulation 21-A(2) of the Liquidation Process

Regulations, 2016.

Observations:

The tribunal at the outset observed that Regulation 21-A of the Liquidation Process Regulations, 2016,mandates Secured Creditors to inform the Liquidator of their decision to realise their security interest and to pay their share of the liquidation costs

within 90 days. It was agreed by the Appellant that the liquidation cost will be shared as per Regulation 21-A but was raising clarifications regarding its calculations and which was clarified also by the liquidator again and again

and this exchange was going on for quite some time.

The tribunal after going through the relevant provisions observer that “It will be clear from this provision that the Secured Creditor is

mandatorily obligated to pay its share as per Section 53(1)(a) and 53(1)(b)(i)of the Code which provides for distribution of assets from the sale of liquidation assets in the order of priority. (waterfall mechanism). Further,

Regulation 21A (3) of Liquidation Process Regulations, 2016, provides that where a Secured Creditor fails to comply with Sub-Regulation (2), the asset, which is subject to security interest, shall become part of the liquidation

estate.”

It further added that the Appellant failed to comply with this mandate. The protracted email exchange between the parties confirms that despite repeated reminders, the

Appellant neither paid full liquidation costs nor demonstrated compliance with Regulation 21A(2). The 90-day period from the liquidation

commencement date also lapsed without payment of the requisite costs.

In Small Industries Development Bank of India (SIDBI) v. Shri Vijender Sharma (2021) this tribunal has held that “It thus becomes quite clear that compliance of regulations 2(ea), 2-А, 21-A and 37 of the Liquidation Process Regulations and Section 52/53 of the IBC are absolutely necessary even if the secured creditor proceeds to realise its security interest.”

This case squarely supports the case of the respondent.

Finally, the tribunal opined that “with respect to the Secured Financial Creditor, the situation

is clearly enumerated in Regulation 21-A(2)(a), which is applicable in this case. The Liquidator's fee is also prescribed under Regulation 4. Regulations 4(1) and 4(1A) provides primacy to CoC and consultation Committee. The appellant's claim that the Liquidator is entitled for a fee under Regulation 4(2)(b) only when he has actually realised or distributed any amount is not

tenable in the light of Regulation 21A.”

Accordingly, the present appeal was dismissed.

Case Title:Shikshak Sahakari Bank Ltd.

VersusMr. Jagdish Kumar Parulkar

Case Number:Company Appeal (AT) (Insolvency) No. 2023 of 2024 & I.A. No. 7595 of 2024

Judgment Date: 11/12/2024